What Explains the U.S.-China Cyber “Agreement”?

Yesterday, according to the U.S. Fact Sheet, the United States and China agreed that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.” This statement leaves untouched cybertheft of IP by non-governmental entities in China, including NGO cybertheft activity of which the China’s government is aware (as opposed to that which it supports). Moreover, the agreement to cooperate with “requests to investigate cybercrimes, collect electronic evidence, and mitigate malicious cyber activity emanating” is limited to cooperation “consistent with … national laws,” which gives both sides (especially China) an easy out whenever it likes. And then there is the question of China’s compliance with what it apparently agreed to, which led President Obama to wonder: “are words followed by actions?”

Despite its obvious limitations, the ostensible agreement does seem like a victory for the United States to the extent that it gets China to acknowledge that stealing IP for commercial gain is wrong. If this is what actually happened yesterday (which I question a bit below), the United States will treat the event as marking progress in the development of cyber-norms that favor the U.S. position, even though the “agreement” (if it was that) came in an informal, non-legally binding context, and even if China’s actions do not live up to the agreement.

The issue I find interesting is why China seemed to accept the U.S. position on cybertheft of IP for commercial gain, and what else might underlie and explain yesterday’s event. Here are three possible answers, followed by a brief explanation of why I think some combination of these answers is probably where the truth lies.

Little Of Substance Happened Yesterday. The first possibility is that yesterday’s event was less significant than it seemed. The representation that China agreed not to steal (or support theft of) IP for private commercial gain was made by the White House and the President, not by China. The Fact Sheet and the President’s language track precisely—suspiciously precisely—the U.S. position on what types of cybertheft are permissible and what types are not. But neither Xi himself nor any other official Chinese official said what the U.S. said. Xi said only that “China strongly opposes and combats the theft of commercial secrets.” That is a vaguer and narrower statement than the U.S. statement. And moreover, Xi’s statement is identical to China’s longstanding position during the long period in which China has stolen (or supported theft of) U.S. IP secrets. “The Chinese government firmly opposes and combats thefts of trade secrets,” said a foreign ministry spokesman in May. China has made similar statements for many years. (See, e.g., here and here and here.) It is thus easily to imagine that China sees yesterday's statements as consistent with its past actions, and that it can continue to insist going forward that it opposes commercial theft even in the face of the same alleged levels and types of IP theft by the same actors inside China.

The truth is we don’t know what was agreed to. All we know is that President Obama and the White House claimed that China agreed to the longstanding U.S. position, and President Xi reiterated the longstanding Chinese position. I assume that China acquiesced to some extent in the White House’s issuance of the statement. But that is not the same thing as agreeing to what was represented in the statement. At a minimum the gap between what the U.S. side said and what the China side said heightens the ambiguity and uncertainty of any consensus.

[UPDATE: A few readers wrote in to say that Xi also stated at the press conference that “both government [sic] will not be engaged in or knowingly support online theft of intellectual properties.” I should have mentioned that statement; but it is not materially different than the one above, where Xi stated that “China strongly opposes and combats the theft of commercial secrets.” China has long denied that it steals IP and related commercial secrets and has long said it is opposed to and criminalizes hacking; so saying these things again now is by itself nothing new. What Xi did not verbally assent to was the additional and key American line – articulated in the Fact Sheet (and by the President in a slightly different formulation) -- about not stealing IP “with the intent of providing competitive advantages to companies or commercial sectors.” Both the U.S. and China steal commercial secrets, but the United States insists that doing so is problematic only when done for the purpose of helping private firms (as opposed to serving national security aims, broadly conceived). I am not saying that China did not change its position or commitments yesterday; I am saying we don’t know if it did based on Xi’s statement. One wonders if China’s reiteration yesterday of its opposition to stealing IP secrets will be accompanied, like past such statements, with continuing to steal (or support stealing) IP secrets.]

China Blinked. A second possibility is that China made a major concession yesterday in response to the threat of U.S. sanctions. (This is Shane Harris’s interpretation.) But (a) the economic sanctions threatened in the run-up to Xi’s visit were fairly modest given the losses the United States has suffered, and (b) China has enormous leverage to cause U.S. firms economic hard in response to sanctions (which is one reason the United States has so long hesitated). For these reasons, if China blinked, something more must have been threatened. Perhaps that something more was hinted at by President Obama ten days ago at a Business Roundtable speech:

“[I]ndustrial espionage and stealing trade secrets, stealing proprietary information from companies [is] an act of aggression that has to stop. And we are preparing a number of measures that will indicate to the Chinese that this is not just a matter of us being mildly upset, but is something that will put significant strains on the bilateral relationship if not resolved. … [I]f we wanted to go on offense, a whole bunch of countries would have some significant problems. And we don't want to see the Internet weaponized in that way.”

This seems like a threat to use offensive cyber attacks in response to IP theft, which is a much more significant threat than mere selective economic sanctions. Such offensive actions would of course mark a dangerous escalation that would invite in-kind retaliation that could cause the United States much suffering. There’s no way to know what the United States concretely threatened, or what risks it was willing to absorb. But if China really is pledging to accept the U.S. norm and change its behavior, the United States must have threatened much, much more than the selective economic sanctions that has dominated the headlines in the last few weeks.

The U.S. Made Concessions. Xi emphasized the need for cooperation between United States and China. “Our two sides should cooperate because cooperation will benefit both, and confrontation will lead to losses on both sides,” he said. Cooperation is a two-way street. I have often noted before that China is not likely to give up advantageous cyber-activities against the United States unless the United States tempers its cyber activities against China. It is possible that the U.S. threat alone led China to back down unilaterally. But another possibility, and indeed likelihood, is that in exchange for China backing down on cyber theft (or at least to acquiescing to the U.S. statement in the Fact Sheet), the United States made concessions to China along some dimension. Many issues were on the table this week in U.S. China relations. If China really alter its position on cyber IP theft, it likely got something, and probably something important, in return, either in cyber or along another dimension.

Another element of Xi’s statement warrants close scrutiny in this connection. In the same sentence in which he claimed that “China strongly opposes and combats the theft of commercial secrets,” he added, “and other kinds of hacking attacks.” The second half of the sentence is almost certainly a reference to foreign meddling in the great firewall of China to promote free expression. Xi’s linking of commercial theft with other forms of hacking might suggest that China’s pledges about IP are dependent upon, or viewed by China as part of a set of norms that would include, a crackdown in hacking more generally, especially related to China’s control over its networks. (In this connection, note that Vice-President Biden stated yesterday that “We continue to have serious concerns about some of China’s actions, as they do ours… in such areas as cyber space ….”) I doubt that the United States made any concessions on this point, but it might have acquiesced in Xi’s insistence that real movement on IP theft is dependent upon relief from hacking in the great firewall. (Neither side would have had an interest in highlighting this, of course.)

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Some combination of all three factors likely explains what happened yesterday. There was almost certainly less substantive agreement on changes in China’s behavior, or about governing norms, than meets the eye. What little change might have occurred in China’s position (such as acquiescing in the Fact Sheet) was likely induced by the United States raising the stakes more than has been appreciated, and by U.S. concessions on some other dimensions that are not yet obvious.

Yesterday’s grand pronouncements seemed to mark progress while at the same time allowing both sides to claim what they want to claim about what they actually agreed to. What happened yesterday’s could spark more progress on U.S.-China cyber relations; or it could spark none. Probably the best guide to what was accomplished was President Obama’s question whether words will be followed by action.